If Jet Wants to Beat Amazon, It Needs More Than Low Prices

Share

If Jet Wants to Beat Amazon, It Needs More Than Low Prices

Jet

Jet, the long-anticipated Amazon e-commerce rival, has finally cleared the runway. The site features an easily navigable layout, a unique pricing model, and a logo that looks like either a crooked smile or a misplaced umlaut. Jet believes it can vie with the world's largest online retailer by offering lower prices on everyday items.

But as promising as all that may be, it ignores one important thing about Amazon’s value proposition: It’s not all about the price. Now that Jet’s live for all, it’s apparent that going penny for penny on bulk detergent may be among the least of its worries, in part because that’s among the least of what Amazon offers.

Price Gauging

If you think of Jet and Amazon as simply two digital storefronts, selling basically the same wares for roughly the same amount, the two do in fact look fairly competitive. Jet’s selection doesn’t appear to be as robust yet as Amazon’s, but its prices are in many cases better, especially as the items pile higher in your cart.

That’s thanks in part to Jet’s business model, which leans on a $50 per person per year subscription to make up for prices that undercut even Jeff Bezos’ bazaar. The more you buy, the more you save. Profit for Jet, if and when it ever comes years from now, will be achieved by attaining the kind of scale where that $50 makes up for barely existent margins.

“It’ll be hard for Jet but they are giving away initial memberships and hoping they can wow customers with great experiences,” says Sucharita Mulpuru-Kodali, e-commerce analyst for Forrester Research. “Amazon doesn’t own all of commerce, and this is an attempt to ‘break the Amazon habit.’”

That three-month free trial offer, which grants you access to savings without a cover charge, does make Jet’s proposal even more appealing. The discounts also add up faster than you might expect; filling a cart with my Costco staples of bulk paper towel, toilet paper, trash bags, overnight diapers, and a grotesque number of Fiber One bars netted me $22.16 in savings compared to Amazon’s list prices. Just one repeat order and my Jet membership will have paid for itself. And while not all Jet purchases include free two-day shipping, all of the items I picked did.

Jet

That all adds up to a compelling case on paper. In practice, though, the story’s not always quite so straightforward. Take those overnight diapers. Yes, the Amazon list price is $18.93, but that’s not what I’ll pay for it there. It’s the sort of item I’ll want delivered every couple of months, meaning I’ll get a healthy Subscribe & Save discount. Since I’m a card-carrying Amazon Mom, that amounts to 20 percent off every delivery, which gets me to cost parity with Jet. Amazon also happens to be offering a $3 coupon for Huggies Overnight Size 5 50 count at the moment, knocking the cost of my initial order down to $12.14—roughly 20 percent cheaper than Jet’s fire sale pricing.

This sort of cost comparison calculus can be exhausting, especially given that the differences often add up to not much more than you might tip at a coffee shop. All else being equal, it’s hard to see it as worth swapping shopping cart loyalties for.

“Jet’s business model raises some concerns around economic viability,” says 451 Research mobile payments analyst Jordan McKee. “Competing solely on price is a challenging approach that understandably is fraught with risk.”

Jet’s bigger problem, though, may be that all else isn’t equal, because Amazon isn’t just a storefront. It’s an ecosystem, buoyed by a subscription service of its own that outshines Jet: Amazon Prime.

How important a factor that will be to Jet’s success is up for debate. “I’m inclined to view Amazon Prime members and Jet’s target members as distinctly different shoppers with a distinctly different set of needs,” says McKee, again noting that Jet’s ideal customer cares only about price.

The price gap, though, isn’t all that wide. And Prime members represent a huge number of shoppers; as many as 40 million in the United States alone, according to a research note last fall from RBC analyst Mark Mahaney. In a report from 451 Research’s ChangeWave service, among those tens of millions a full 92 percent describe themselves as either “very satisfied” or “somewhat satisfied.” In short, the Amazon loyalists are legion, and they aren’t likely to jump ship.

That makes sense, and not just because of all of the bonus content and savings that a Prime membership provides for just $4 more per month than a Jet membership costs. IDC research director Scott Shawn described the impact of Prime benefits as “incremental,“ at least until it finds a breakout TV series in the House of Cards or Game of Thrones vein, but acknowledged that Amazon’s appeal runs deeper than streaming. “There’s a relationship that’s been built with Amazon over time, and people are accustomed to doing that,” says IDC research director Scott Strawn.

In fact, attempting to replicate the nature of that relationship—infinite selection, seamless service—-that may end up being Jet’s most difficult challenge.

Dream Fulfillment

The most important difference between Amazon and Jet, says Strawn, may not be price or products but fulfillment, those little details that add up to getting you what you ordered when you’re expecting it.

Unlike Amazon, which has decades of logistical fine-tuning in its rearview and largely ships products from its own warehouses, Jet acts largely as a middleman, dependent on a broad range of vendors to deliver exceptionally cheap products on short time frames. So what happens if and when those vendors, quite literally, fail to deliver?

“With Amazon’s process, you’re not buying from somebody else. You’re buying from Amazon. You can have a relatively high level of confidence,” Strawn explains. “When you’re buying from somebody else, there’s an opportunity for miscommunication, or a breakdown in communication after the sale. Jet is dealing with lots and lots of different companies.”

Strawn points to Alibaba, China’s e-commerce giant, as the extreme version of what can go wrong. The short version? “In lots and lots of circumstances,” Strawn says, “people don’t get their order.” That hasn’t happened yet to Jet, and it may never. But in this competitive a situation, with margins of error so slim, it’s a tricky thing to be dependent on the efficiencies of others.

None of which is to say that Jet has embarked on an impossible mission, or that it’s not worth your time. “At the core of it is a good idea," says Strawn. “They certainly have a big opportunity.” More importantly, there’s really no reason not to sign up for the free three-month trial (Jet won’t auto-bill you after), and it may even become your go-to discount provider.

The challenges for Jet are steeper than the simple price play it’s trying to build its reputation on. For now, though, the more competition, the better. Let Amazon and Jet (and Walmart, and Target) drive prices as far into the ground as they’ll go. You’re always going to need cheap toilet paper, and those baristas aren’t going to tip themselves.